The cut helps. It does not heal.
The numbers tell a harder story
While some analysts have suggested OMCs are now at or near break-even, Sen’s calculations point to a significantly more painful reality on the ground.
Before the Middle East conflict escalated, crude was trading at roughly $71 to $73 per barrel and diesel prices in Asian markets were around $90. Today, the effective retail product price for diesel in the region has climbed to between $188 and $195 — more than double the pre-conflict level.
Against that backdrop, the Rs 10 excise reduction offsets approximately $20 of that increase. The remaining losses on blended retail margins for petrol and diesel are still running at an estimated Rs 20 to 25 per litre.
“This essentially only serves to reduce the impact to a certain extent — it does not mitigate the loss completely,” Sen told ET Now plainly.
Sharing the pain, not eliminating it
What the excise cut does achieve is a meaningful shift in who absorbs the loss. By reducing its own tax take, the government is effectively stepping in to shoulder a significant portion of the burden that was previously sitting entirely on OMCs’ balance sheets.That is a structurally important signal. It shows the government’s intent to prevent sudden price shocks for Indian consumers — even at a fiscal cost to itself. But it also confirms that the losses are real, large, and not yet fully resolved.
Sen’s assessment: a combination of further moderation in international crude prices and, potentially, retail price increases at the pump will ultimately be needed to restore OMC profitability on the marketing side.
The benchmark problem nobody is talking about
There is a further complication that makes precise margin calculations unusually difficult right now — and it is one that most market commentary is glossing over.
India’s crude import basket typically uses Dubai and Oman crude as its primary benchmarks, accounting for roughly 70% of the calculation. With the conflict disrupting flows from both origins, that benchmark has become, in Sen’s words, “an unreliable marker.”
Analysts are being forced to rely on judgment calls and channel checks rather than clean data. The implication for investors: margin estimates from any analyst right now — including ICICI Securities — carry wider error bars than usual. Anyone presenting precise OMC margin forecasts with high conviction should be treated with scepticism.
What would it take to break even?
Sen is reluctant to put an exact number on the retail price increase needed to fully close the gap, partly because international product prices remain at historically abnormal levels that are unlikely to persist.Diesel spreads against even the distorted Indian crude basket are running above $40 — a figure he describes as not one “on which you make any calculations.” ATF spreads are even higher. These are crisis-level numbers, not a new normal.
His rough estimate: even averaging across the month of March, a further Rs 10 to 15 per litre increase would likely be needed on top of the excise cut to clear remaining losses. But with the government clearly prioritising price stability for consumers, a status quo on pump prices is the most likely near-term outcome — with the hope that conflict resolution brings international prices back toward earth within 15 to 20 days.
The refiner opportunity the market is eyeing
There is, however, a compelling flip side to this story — and it sits with pure-play refiners rather than integrated OMCs.
If the current Refinery Transfer Price mechanism remains unchanged, independent refiners with heavy exposure to diesel and ATF — products whose spreads are running at extraordinary levels — could be on the verge of recording supernormal profits for a short period.
Players such as MRPL and Chennai Petroleum, which derive a significant portion of their product slate from these high-spread fuels, are drawing increasing attention from traders looking to position themselves on the refining side of the crude shock.
“They could actually see supernormal profits for a short period of time — absolutely,” Sen said.
The excise cut is a meaningful and well-timed policy intervention. But investors betting on an OMC recovery should note that the sector remains loss-making on retail operations, benchmarks are unreliable, and full profitability is contingent on either a geopolitical resolution or further price action — neither of which is guaranteed.
The smarter near-term play, if Sen’s analysis holds, may be in the refiners quietly benefiting from the same crisis that is hurting their downstream counterparts.